Income Elasticity of Demand
A measure of the responsiveness of demand for changes in income.
When there is economic growth, society's income increases leading to a higher demand for goods and services. As we saw in the previous section:
The goods that have income inelastic demand are:
Their incomes, as it increases, will become more aligned to expenditure on luxury goods.
The goods that have income elastic demand are:
Hence, firms willing to expand may decide to sell goods and services with high income elasticity, though these come with higher risks as well.
All economies have three sectors:
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